Friday, January 16, 2015

The truth behind low gas prices


For months, Ive shared my theory on why gas prices are so low and for months Ive gotten the skeptical e-mails and phone calls to my radio show. A recent piece from Bloomberg.com is vindication, of sorts. In that piece, they describe how OPEC has weaponized the price of oil.

A couple of months back, some egghead with Bank of America issued a paper on how OPEC was finished, done. He pointed to the fact that OPEC had done nothing to stop the plunge in oil prices. My theory was it was all on purpose. Bloomberg agrees. They wrote, If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest.

Saudi Arabia, the UAE and Kuwait are out to kill the fracking business in this country and theyre on their way to succeeding. Yeah, the oil prices might be low now and theyll probably go lower but this is all by design. Fracking is an expensive proposition. Frackers cant stay in business with oil this low. OPEC has purposely glutted the market with oil to bring the price down to a level where they cant survive.

How long will this last? Thats anyones guess but you can be sure that OPEC is waiting until the last fracker is out of business before they tighten supply. And they have the luxury of time. They have around $826 billion to sit on while the prices are low. Once theyre convinced the frackers are done its back to business as usual. Well, almost.

A Saudi prince has let it slip that the days of $100-a-barrel oil are over. He didnt show his hand but what he really means is theyll never let prices climb back to a point where fracking is profitable. That may mean gas prices will not go back to $4-a-gallon but it still means OPEC is very much in control of the world oil prices. Someone needs to send a memo to that so-called expert at Bank of America.

We need to take ourselves off the world oil price. If you think this is folly you need to understand that oil has only been traded on the world market since the 1970s. Before that, the price was determined by each countrys market.

Imagine a world in which we drill all the oil we need for our own use and we never have to fight another war over oil. In order for that to happen we need to open up all available public land, within reason, and drill, baby, drill.

Whats ironic is the dirt people and the government caused fracking to start with. Let me explain. The EPA so constricted the drilling for oil on public land that it drove the price of oil through the roof. This was the environmentalistsdream all along. Al Gore wrote in his book Earth in the Balance that we needed expensive gas to drive people to so-called green energy.The problem was green energy was not yet ready to take the place of fossil fuels. What happened instead was the high prices made fracking feasible and fracking is the environmentalists worst nightmare.

But, no worries. Fracking is probably done but thanks to fracking well probably never go back to outrageously high gas prices. Which means the chances of ever moving to green energy are dimmed, as well.

Its funny, when you think about it. The dirt people tried to kill Big Oil and gave us affordable gas instead. You gotta love it.


Phil Valentine is the host of the award-winning, nationally syndicated talk radio show, The Phil Valentine Show.


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